If you’re looking to build wealth, what’s the best path to success? Perhaps it’s starting an online business or launching new products.
According to real estate mogul Grant Cardone, however, it’s none of the above.
“You don’t want to be an entrepreneur, you do not want to be an influencer, you do not want to be a boss,” he said during an episode of Neel Dhingra’s marketing podcast, the neelhome show. “Skip to the good stuff: be an investor.”
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Cardone uses Berkshire Hathaway CEO Warren Buffett as an example. He claims the investing legend — who has had a stake in Coca-Cola since 1988 — earned $508 million in dividends from the soft drink company last year, while the “top guy” made $58 million by comparison.
However, it’s unclear where Cardone sourced his numbers as Berkshire Hathaway actually received closer to $736 million in dividends from its stake in Coca-Cola in 2023, according to reports.
Meanwhile, Coca-Cola CEO James Robert Quincey, who is presumably the “top guy” that Cardone made reference to, made around $25 million in total compensation last year.
Nevertheless, Cardone’s theory that investing is generally an easier and more lucrative path for accumulating wealth seems somewhat justified. Buffett himself has called investing a “simple game” in the past.
Here’s how long it might take to replace your income with consistent investing.
Replacing your income by investing
Let’s say you earn $50,000 a year and set aside 10% of it to invest in a low-cost index fund and switch to a high-yield dividend stock to generate passive income. How long would it take for your dividends to surpass income?
Vanguard’s S&P 500 index fund has delivered a compounded annual growth rate of around 15% over the past five years. If future returns are similar, it would take roughly 25 years to accumulate $1.06 million in net assets.
The S&P 500 offers a relatively low dividend yield of 1.3%, so this index fund could generate around $13,000 in annual dividend income.
However, if this capital can be rotated into a robust dividend stock you could achieve higher passive income.
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Dividend stocks
Some stocks offer better dividend payouts than the market average. Coca-Cola is a good example. This Buffett-backed beverage maker offers a dividend yield of 2.95% at current market price.
At the time of this writing, United Parcel Service (UPS) offers a better yield of 5.11%. Shifting your million-dollar portfolio into this stock could deliver annual passive income of roughly $54,000.
Caveats
It is possible to “skip to the good stuff” as Cardone says. Being an investor is significantly easier than working your way up the corporate ladder to become CEO, or starting a successful business from scratch.
However, the caveat is time. It takes decades of consistent and disciplined investing to replace your income from a standard day job.
If you want to reach financial freedom sooner, you may need to work harder to boost income, create a strict budget, cut underutilized expenses, or consider a side hustle.
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